Auto bailout
I "missed" this earlier this week. Edward Niedermeyer is anything but charged up about the Volt:
So the future of General Motors (and the $50 billion taxpayer investment in it) now depends on a vehicle that costs $41,000 but offers the performance and interior space of a $15,000 economy car. The company is moving forward on a second generation of Volts aimed at eliminating the initial model’s considerable shortcomings. (In truth, the first-generation Volt was as good as written off inside G.M., which decided to cut its 2011 production volume to a mere 10,000 units rather than the initial plan for 60,000.) Yet G.M. seemingly has no plan for turning its low-volume “eco-flagship” into a mass-market icon like the Prius.
Quantifying just how much taxpayer money will have been wasted on the hastily developed Volt is no easy feat.
Yesterday, the Congressional Oversight Panel released a report which concluded: "Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount. The estimates of loss vary." Treasury has admitted $23 b. may be subject to "much lower recoveries." CBO recently raised its estimate of taxpayer losses from TARP investments to the auto industry to 73% or $59 b.
The COP report is particularly detailed in its recounting of the history of the auto industry bailout and its analysis of where we stand today. It made numerous recommendations for Treasury to clarify its objectives, to increase the transparency of its actions, to order full financial disclosures from the industry, to provide a legal justification for its intervention, and to consider placing its GM and Chrysler shares in the hands of "an independent trust that would be insulated from political pressure and government interference."
By my reading, Stan did not disagree with anything I posted about Cash for Clunkers. None of the three criticisms of the C4C program that he addressed were leveled by me. My criticism is that it is a waste of assets, and that a waste of assets necessarily makes us poorer. But it is worth revisiting the each of these popular criticisms in turn, to figure out which of them have merit:
1) C4C isn’t going to increase total sales of new cars; it’s just going to accelerate buying that would have occurred anyway.
Picking up on an earlier post, it appears that the holders of Chrysler's secured debt will have their day in court -- appeals court to expedite the process. From the Wall Street Journal today:
The Second U.S. Circuit Court of Appeals in New York said it would hear an appeal by a group of Indiana pension funds challenging the sale of most of Chrysler's assets to the company's proposed partner, Fiat SpA of Italy. Oral arguments in the appeal will begin Friday, according to the court's order. Chrysler had hoped to potentially exit bankruptcy as soon as this week.
The article goes on to point out the main issue:
Senior lenders owed $6.9 billion would receive $2 billion, giving them a recovery of about 29 cents on the dollar.
Yesterday, President Obama's auto team anonymously briefed key reporters on the impending takeover of GM. Uncle Sam will become a 70% shareholder, the UAW will become a 20% shareholder, and bondholders and other creditors will share the rest. This is not going to come to a happy end for taxpayers for several reasons. First, the taxpayers will not get back all of $19.4 b. they've already "invested" in GM, nor all of $30 b. in loans they're about to be saddled with. Second, auto parts firms will soon need additional funds as well. Third, the collateral damage to Ford and other companies making cars in the U.S. will not be small. Finally, despite Administration assurances that they will be "reluctant owners," eager to sell, it will take a long time to extricate ourselves from this mess.
